I have a Tanita body fat scale. I think it is a great tool for gaging your progress. After I had it for about a month, I did an underwater body fat check, and the results were the same.

As stated in the instruction manual. Your body fat reading will vary at different times of the day. It depends on how hydrated you are. More than likely, your state of hydration would also affect an underwater weight test, but probably not as much.
In the morning, when you first get up, you will get the highest body fat reading of the day. (as well as the lowest weight).
I have found that my weight varies about 3 to 4 pounds through the day, and the body fat indicator will change as much as 2 percent.
I also found that you can drop your body fat percentage a full point if you check right after you get out of the shower, and you are still a little damp.

I check my body fat and weight the first thing in the morning, before I shower because I get the most consistant (if not the most flattering) readings.